In these unprecedented times, fast-track sales of troubled companies are prevalent across a wide range of industry sectors. With traditional M&A, there are a variety of options available to companies seeking to restructure their businesses, but there are no guarantees that a transaction will take place. Today, an aura of fatigue looms over the negotiating process, forcing interested parties to increasingly gravitate toward a sale process that is marked by a compressed transaction schedule and, most notably, predicated on a date-certain event. Today’s quick sales are defined by some as transactions completed in less than 120 days, yet the set time frame may be the defining attribute—lighting a proverbial fuse for buyers to take full advantage of a temporal opportunity.
The necessity to sell creates both opportunities and challenges for those involved in the process. A quick sale gives the bank, lenders and holders of unsecured claims a liquidity option. Limiting the costs and uncertainty associated with a lengthier process benefits the estate and adds the prospect of employment continuity along with the potential for distribution beyond the value of the secured indebtedness. Companies that continue to operate need this to rebuild and maintain relations with trade creditors while seeking new business opportunities to create new goodwill.
Quick sales are equally attractive to the buyer pool looking to reap the benefits of a “good deal” in today’s market. Buyers are often able to acquire companies free and clear of liens and encumbrances with goodwill and brand-equity intact. This is especially prevalent in the lower-middle market, where the majority of buyers fund deals with cash available on their balance sheets. With depressed values, illiquid markets and a rapidly-consolidating business climate, strategic buyers are able to take advantage of market forces to acquire companies in the $5-$20M range that don’t require significant capital-raising efforts.
A downside to the quick-sale process is that it is difficult for some buyers—those who tend to require more due diligence or take a more structured approach to researching and acquiring assets—to contemplate completing a transaction within a compressed timeframe. Holders of secondary liens typically object to quick sales for this very reason, as they often become equity or lose all avenues for recovery in the process.
The presence of a hired intermediary to navigate the sale is of utmost importance to the process. Initially, an intermediary provides an objective perspective and third-party presence to advance and facilitate the process outside of the ordinary course of business. The intermediary or advisor limits the sales’ impact on the business and provides significant assistance to the debtor, who traditionally is not experienced with asset sales and is better suited to focus on day-to-day operations. An advisor brings a wealth of asset class knowledge and experience, as well as a comfort level with the regulatory environment and the bankruptcy process, which company executives simply do not possess. Finally, the intermediary delivers a knowledge base of buyers and a distressed M&A referral network to the table to ensure higher and better offers at closing.
As consolidation and contraction persists, quick sales and balance sheet acquisitions will continue to thrive over the next 24 months, and complex financial markets will continue to see lack-luster improvements in M&A and refinancing activity.